Week 8: IT Portfolio Management
description
Transcript of Week 8: IT Portfolio Management
Week 8: IT Portfolio Management
MIS5001: Management Information SystemsDavid S. McGettigan
Adapted from material by Arnold Kurtz, David Schuff, and Paul Weinberg
2
Agenda Prior Lecture Recap
Capturing the Business Value of Systems
IT Portfolio Management
Next Week
Prior Lecture Recap
4
Prior Lecture Recap Customer Relationship Management
Brings together information regarding customers, sales, marketing, and products Functions supported and management issues
Business Intelligence Knowledge about your customers, competitors, partners, competitive
environment, and internal operations Enables users to identify and understand the key trends and events driving their
businesses Uses and challenges
Knowledge Management Knowledge management comprises a range of strategies and practices used in
an organization to identify, create, represent, distribute, and enable adoption of insights and experiences.
Benefits, Communities of Practice, Communities of Interest
Capturing the Business Value of Systems
NOTE: This section is a primer for IT Portfolio Management which follows
6
Capital Budgeting Capital budgeting is the process of
analyzing and selecting various proposals for capital expenditures. Information systems are considered long-term capital investment projects.
Types of investments: Meeting demand / enhancing profitability Meeting or enhancing compliance (Quality,
Regulatory, SARBOX, etc)
7
Cost/Benefit Analysis Costs:
Hardware Software Services Personnel
Benefits: Tangible (“Hard”) Intangible (“Soft”)
8
Costs and Benefits of IT Solutions
Challenge: capturing total costs
Challenge: quantifying benefits
9
Budgeting Models Capital budgeting models are used to
evaluate capital projects (and hence understand the value of IT projects)
The payback method The accounting rate of return on investment (ROI) The net present value
10
Payback Method The payback method is quite simple: It is a measure
of the time required to pay back the initial investment of a project.
The payback period is computed as follows:
The method ignores the time value of money, the amount of cash flow after the payback period, the disposal value (usually zero with computer systems), and the profitability of the investment.
11
ROI Return on Investment
Use the present value of net benefits Compare to cost of capital and/or other projects Expressed as a percentage
12
NPV Net Present Value
The amount of money an investment is worth, taking into account its cost, earnings, and the time value of money.
Expressed in dollars.
Capturing financial benefits can be straightforward, but what costs should be included in the analysis?
13
Problems with Managing byCapital Budgets - TOC Consider acquisition costs and maintenance costs
The cost of “owning” a PC (or a server) can be several times more per year than the original purchase cost
Examples of maintenance costs Repair contracts Configuration
management Downtime and
lost productivity Upgrades
14
Problems with Managing byCapital Budgets - Intangibles
How to quantify the intangible benefits Frequently
includes “musts” e.g. Quality and Regulatory
These intangibles prevent the capital budgeting process from being the sole effective portfolio management technique
IT Portfolio Management
Honor isn't about making the right choices. It's about dealing with the consequences.
Midori Koto
16
Business Drivers Drivers for IT Portfolio Management:
Complexity Cost Cross-functional Relationships with other programs Volume
17
Definition Portfolio management - a methodology for
presenting a holistic view of IT projects across the enterprise in order to ensure alignment of IT with corporate strategy
Source: www.cio.com
18
Portfolio Management SEVENTY-FIVE PERCENT of companies do
not possess clear, ongoing oversight of their IT project portfolios. - AMR Research study.
Funding Optimal mix of risk and reward Better communication Strengthened alignment between IS and the
business. More efficient use of human resources Fewer redundant and overlapping projects
Source: www.cio.com
19
Methodology Ensure projects appropriately linked and managed
Conduct a project inventory
Establish criteria aligned with corporate values and objectives
Classify and evaluate programs
Apply prioritization methodology
Actively manage the portfolio
20
Prioritization
Value
Cost
EXECUTE
CANCEL DEFER
DEFER
21
Portfolio Mgmt Exercise See class handout
22
Portfolio Classifications Infrastructure
Provides shared based of capabilities for the organization, leading to greater business flexibility
Transactional Process and automate the basic transactions of the
company to reduce costs Informational
Provide info to manage the company, resulting in shorter time to market or increased quality
Strategic Usually higher risk and external facing systems result in
sales growth or competitive advantage.
Source: www.cio.com
23
Portfolio Comparison
Source: www.cio.com
Cost-based PortfolioAgility Portfolio
Infrastructure TransactionalInformational Strategic
Infrastructure TransactionalInformational Strategic
24
Case Study: Bound to Fail Describe the system in question (“SBS”)
What was the supportability of the system in 1997 (beginning of the case)?
What were the business conditions and “distractions” at the time?
Describe IT planning at Comair (e.g. 5-year)
What was the impact of the acquisition by Delta?CIO.com – Bound to Fail – May 1, 2005
25
Case Study: Bound to Fail How were the companies business processes
reflected in the system?
Describe the crash event. When did the crash take place? What was the root cause? What was the business impact? What was the immediate remediation plan in terms of
personnel and systems?
Brainstorm: How could this have been avoided?
CIO.com – Bound to Fail – May 1, 2005
Case Study: Volkswagen What is your assessment of the new process for managing
priorities at Volkswagen of America? Is it better or worse than the old process? Are the criticisms justified?
How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system? Does Volkswagen need a new selection system?
How is it possible that under this new system a “critical” project (global supply chain system) was unfunded? What should be done about that?
26
Next Week
Enterprise Applications